Deferred Shares in Singapore Companies: What They Are and When to Use Them (2026)

Founders and their advisers occasionally come across the term “deferred shares” while structuring a company’s share capital, usually while comparing notes with an ordinary and preference share class already on the table. It is a class most Singapore-incorporated companies will never issue, yet understanding what a deferred share actually is, and why it has fallen out of favour, helps a director make a better decision about which structure genuinely serves the company’s commercial goals.

This article sets out what deferred shares are under Singapore company law, how they differ from ordinary and preference shares, the constitutional and ACRA requirements for creating any new class, and why most Singapore founders end up choosing an employee share option plan or a convertible instrument instead. We finish with a worked example and practical guidance on when, if ever, a deferred share class is the right tool.

None of this is a substitute for legal advice on your own constitution and shareholder arrangements, but it should give you enough context to have an informed conversation with your corporate secretary, accountant or lawyer before any resolution is drafted.

What Is a Deferred Share?

A deferred share is a class of share that ranks behind ordinary shares, and behind preference shares where they exist, for both dividends and the return of capital on a winding up. In the classic (largely historical, UK-derived) form, a deferred share entitles its holder only to a distribution once every other class has first received a stated minimum amount, or only after a specified trigger, milestone or target has been met. In practice this means a deferred shareholder may receive nothing at all in an ordinary trading year, and may only ever see value if the company performs exceptionally well or a specific condition is satisfied.

Singapore’s Companies Act 1967 does not define “deferred share” as a distinct statutory category the way it expressly addresses preference shares. Instead, section 74 of the Companies Act 1967 permits a company to create different classes of shares with different rights (as to dividends, capital, voting or otherwise) provided those rights are set out in the company’s constitution, and section 75 of the Companies Act 1967 separately requires that where preference shares are issued, their specific rights (repayment of capital, participation in surplus assets and profits, cumulative or non-cumulative dividends, voting, and priority) must be set out in the constitution. A “deferred share” class is therefore created under the general flexibility in section 74, with the constitution spelling out exactly what makes the class deferred: typically a subordination of dividend and capital rights behind the ordinary and preference classes, and sometimes a nominal or nil voting right.

Why the Class Is Rarely Used in Singapore

Deferred shares have a long history in UK company practice, where they were sometimes used to keep the nominal number of “votes” or “participating” shares artificially low, or to warehouse founder value behind a fundraising round. In Singapore, we simply do not see this structure used often in practice. There are a few honest reasons for that.

First, Singapore company law already gives a constitution wide latitude to create almost any share economics through ordinary or preference share terms, without needing a separate “deferred” label. Second, the two commercial goals that deferred shares historically served, namely rewarding founders or key people only once a target is hit, and parking value that a specific class should only receive on a later trigger, are now handled far more cleanly by other instruments: an ESOP with a vesting schedule, vesting ordinary shares subject to a reverse-vesting agreement, or a convertible note or SAFE-style instrument for investors. Third, a permanent, standing share class with subordinated rights sitting in the register indefinitely tends to complicate the cap table, ACRA filings, future funding rounds and eventual exit due diligence, for very little practical benefit over a time-limited contractual arrangement.

We say this plainly because we would rather a client understand, before instructing us to draft a new class, that deferred shares are a legitimate but niche tool, not a mainstream Singapore practice, and that in the overwhelming majority of cases there is a simpler and more commercially standard way to achieve the same outcome.

Ordinary, Preference and Deferred Shares Compared

The table below sets out how the three classes typically compare. Actual rights always depend on what is written into the company’s own constitution, so this is a general guide only, not a substitute for reading your own constitutional documents (see our guide to converting shares from one class to another).

Common Rationale for Deferred Shares (and Why Alternatives Usually Win)

Founder or Management Incentive Structures

A deferred share can theoretically be used so a founder or manager only receives value once other shareholders have received a baseline return, aligning incentives with company performance. In practice, most Singapore companies achieve the same alignment with far less administrative baggage through an ESOP with performance-based vesting conditions, or ordinary shares issued subject to a vesting and buy-back agreement. Both are simpler to unwind, easier for future investors to understand, and do not require a permanent constitutional class.

Deferred Consideration in M&A or Earn-Outs

In an acquisition, a seller sometimes receives part of the price only if the target hits future milestones. This could in theory be structured as deferred shares issued by the buyer, but in Singapore practice it is far more common to document this as contractual deferred consideration, an earn-out clause in the sale and purchase agreement, or loan notes, rather than to create a whole new statutory share class for what is really a payment mechanic tied to a contract.

Historic or Bespoke Structuring

Occasionally a Singapore company inherits a deferred share class from a UK parent’s group structure, or a bespoke joint-venture agreement genuinely needs a class that only participates after a defined threshold. These are the situations where deferred shares still appear, and they usually call for careful drafting and legal advice on structuring a new share class to make sure the rights, restrictions and any variation-of-rights procedure under section 74 are watertight before the constitution is amended and the class is allotted.

Constitution and ACRA Requirements for a New Share Class

Before any deferred (or other new) share class can be created, the company’s constitution must be amended by special resolution to set out the rights attaching to that class, in line with section 74 of the Companies Act 1967. If the new class includes any preference-style features, section 75 requires those specific rights to be spelled out in the constitution as well. Once the constitution is amended and the shares are allotted, the company must lodge the relevant return of allotment with the Accounting and Corporate Regulatory Authority (ACRA) so the register of members and business profile correctly reflect the new class. Our guide on how to allot new shares in a Singapore company walks through that filing process in more detail.

Existing shareholders whose rights could be affected by a new class are entitled to the variation-of-class-rights protections in section 74, including, in some cases, the ability for a minority of affected shareholders to apply to court to have the variation set aside. Directors proposing a deferred share class should factor this protection into the timeline and shareholder communication plan, and should also think ahead to how the class will be treated in any future succession or exit planning, since an unusual class sitting quietly in the register can slow down due diligence years later.

A Worked Example

Consider a Singapore private company where two co-founders hold ordinary shares and bring in an outside investor who takes preference shares with a fixed dividend and priority return of capital. The founders want to reward an early employee who joined before the company had any revenue, with equity that only has real value once the company has returned the investor’s capital and paid a minimum dividend to the ordinary shareholders.

One option is to create a deferred share class for the employee, ranking behind both the preference and ordinary classes, with the constitution amended under section 74 to state that the deferred class shares in surplus profits only after the ordinary shareholders have received a stated minimum dividend. This is legally workable, but it permanently alters the company’s constitution, requires an ACRA-filed allotment, and leaves an unusual class on the register that future investors will ask about at every subsequent round.

The more common outcome in Singapore practice is that the same commercial goal is met by granting the employee options under an ESOP that vest over time and become exercisable into ordinary shares once the company reaches a revenue or funding milestone, or by simply issuing ordinary shares subject to a vesting and forfeiture agreement. Either alternative rewards the employee on broadly the same economic terms, without a standing deferred class complicating the capital structure for the life of the company.

When Deferred Shares Might Genuinely Be the Right Tool

Despite the above, there are narrow situations where a deferred class remains sensible: a group restructuring where a foreign parent’s existing deferred share terms need to be mirrored in a Singapore subsidiary, a bespoke joint venture where the parties specifically want a formal, constitutionally entrenched subordination rather than a contractual one, or a historic company that already has a deferred class and simply needs it administered correctly going forward (dividend calculations, ACRA filings, and any future variation of rights). Outside these fairly specific fact patterns, we would generally steer a founder toward an ESOP, vesting ordinary shares, or a convertible instrument before recommending a new deferred share class.

Conclusion

Deferred shares are a real and legally available class under Singapore’s Companies Act 1967, created through the general class-rights flexibility in section 74 and, where preference-style features are involved, the specific requirements of section 75. But they are rarely the right answer for a modern Singapore private company. Most of the commercial goals that once justified a deferred class, whether founder or employee incentives or earn-out style deferred consideration, are now handled more cleanly through an ESOP, vesting ordinary shares, or a convertible note, all of which are easier to explain to a future investor and simpler to unwind.

If you are weighing up a new share class, whether ordinary, preference or deferred, it is worth getting the constitution, the ACRA filings and the shareholder protections right before any resolution is passed. Sound corporate secretarial support, combined with proper investment decisions made with full information, will save considerable cost and delay later.

To speak with the team at Raffles Corporate Services, you can email [email protected] or call, SMS, or WhatsApp +65 8501 7133. We are happy to assist with any queries.

The Editorial Team, Raffles Corporate Services